Obama’s Pay Czar Defends Fannie, Freddie Compensation Deals

The Obama administration’s pay czar said Wednesday that he was “sympathetic” to the “unique problems” that Fannie Mae and Freddie Mac face and that don’t exist at other financial firms in defending the government’s approval last week of multi-million dollar pay packages to the companies’ senior executives.

Kenneth Feinberg, the Treasury official who’s overseeing the government’s effort to rein in big paydays on Wall Street, wasn’t in charge of approving the compensation deals at Fannie and Freddie, though he was consulted by the government regulators that made the decision.

“I’m somewhat sympathetic to the notion that there are unique problems at Fannie and Freddie that don’t exist at the companies that are before my mandatory jurisdiction,” Mr. Feinberg told CNBC.

Fannie and Freddie’s chief executives will be eligible to take home up to $6 million annually in cash, and the top five executives for each companies are also eligible for hefty cash payouts. The companies can’t pay executives in stock without Treasury’s approval, and analysts who cover the company don’t think the stock has any value. (Still, that didn’t stop investors from buying up Fannie and Freddie stock on Monday after the government last week promised to absorb unlimited losses over the next three years.)

The companies also face an uncertain future because Congress and the White House are set to begin considering in 2010 the fate of the U.S. housing-finance structure and what roles, if any, Fannie, Freddie, or successor entities will play.

“One, there is no stock, so all of the compensation needs to be in cash,” Mr. Feinberg said. “You can try to limit the cash and tie it to performance, but it’s a little hard to do that more than a year ahead because there may not be a Fannie and Freddie.” He said that uncertainty over the companies’ long-term prospects makes it “difficult to convince people to come to work” for the companies.

The government, which had pledged up to $200 billion to each company to keep them afloat, last week said it would erase limits on that lifeline over the next three years. The Treasury also eased restrictions on the companies’ investment portfolios that will give them more flexibility to buy delinquent loans over the next year.